Ecuadorian Banana Farms Should Consider Organic Banana with Low Price Risks in Their Land-Use Portfolios

Organic farmingis a more environmentally friendly form of land usethan conventional agriculture. However, recent studies point out production tradeoffs that often prevent the adoption of such practices by farmers. Our study shows with the example of organicbanana production in Ecuador that economic tradeoffs depend much on the approach of the analysis. We test, if organicbanana should be included in economic land-useportfolios, which indicate how much of the land is provided for which type of land-use. We use time series data for productivity and prices over 30 years to compute the economic return (as annualized net present value) and its volatility (with standard deviation as risk measure) for eight crops to derive land-useportfolios for different levels of risk, which maximize economic return. We find that organicbanana is included in land-useportfolios for almost every level of accepted risk with proportions from 1% to maximally 32%, even if the same high uncertainty as for conventional banana is simulated for organicbanana. A more realistic, lower simulated price risk increased the proportion of organicbanana substantially to up to 57% and increased annual economic returns by up to US$ 187 per ha. Under an assumed integration of both markets, for organicand conventional banana, simulated by an increased coefficient of correlation of economic return from organicand conventional banana (ρ up to +0.7), organicbanana holds significant portions in the land-useportfolios tested only, if a low price risk of organicbanana is considered. We conclude that uncertainty is a key issue for the adoption of organicbanana. As historic data support a low price risk for organicbanana compared to conventional banana, Ecuadorian farmers should consider organicbanana as an advantageous land-useoption in their land-useportfolios.